Lombard Odier Investment Managers expects Asia’s dollar-denominated bond market to return 5-10% this year, after the massive sell-off in late 2018.  The fund manager cites policy easing in the U.S. with interest rates expected to stay the same all year, and the revival of risk appetite in China, as some of the reasons for the market rally.  This asset class had fallen 0.6% in 2018 – its first annual loss since 2013 – and has since gained 2.4% from the beginning of 2019, its strongest start since 2012.  Lombard Odier believes there is still room for Asia’s dollar bonds to run as the market is likely to see a lower net supply of new bonds as compared to previous years and there continues to be pent-up demand from bond fund inflows.  Other funds have put out similar bullish views on Asia credits for 2019.  Lombard Odier also states that the greatest risks to the Asian bond markets include complacency where investors go after returns by allowing poor quality borrowers to enter the bond market, or allow borrowers to price their bonds below fair value.

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